Tiffany Caution Hits Stocks

Retailer's admission that it is seeing weaker sales in Europe and on the U.S. East Coast sparked a mini luxe sell-off on Tuesday.

Michael Kowalski, chairman and chief executive officer of Tiffany & Co., sparked a mini luxe sell-off Tuesday when he voiced concerns about weakness in Europe and on the East Coast in the U.S., driving the jeweler’s stock down 8.7 percent.

Kowalski admitted to “recent sales weakness in Europe and in the eastern part of the U.S.” The comment sent the company’s stock spiraling down to $67.22, even as third-quarter profits jumped 62.8 percent and handily beat Wall Street estimates.

The sell-off came just as the sentiment surrounding retail began to improve, with strong sales over the Black Friday weekend and on Cyber Monday and a gain in consumer confidence. The S&P Retail Index rose 0.7 percent, or 3.34 points, to 519.21, as the Dow Jones Industrial Average gained 0.3 percent, or 32.62 points, to 11,555.63.

Concerns about the luxe market have been bubbling up for some time.

“We started to lower our 2012 estimates of the luxury sector a few months ago,” said Stifel Nicolaus analyst David Schick. “There have been some signs already that the high end is a little softer.”

Even though Tiffany has been consistently strong, Kowalski’s comments are “important,” he said, explaining that the news is a “reset” for the market, which came out of the holiday weekend “feeling very good.”

But Tiffany’s vice president of investor relations, Mark Aaron, was a “little surprised” by the market’s reaction, and insisted that the company was just being “candid” and “certainly wasn’t implying doom and gloom.”

Although Tiffany has experienced declining sales in the U.K. for several quarters, Aaron said the jeweler is now noticing a deceleration in business in continental Europe, which “isn’t a surprise to the company and can’t be a surprise to investors, considering the headlines.”

“The Tiffany brand is definitely building awareness in Europe but it’s nowhere even close to hitting its maximum…there’s a strategic opportunity there,” he said. “Part of our success is that we’ve taken this long-term view. This is a brand that has weathered a lot of recessions over the years.”

The 174-year-old company’s third-quarter profits totaled $89.7 million, or 70 cents a diluted share, topping analysts’ estimates by 9 cents. This compared to year-ago income of $55.1 million, or 43 cents a share.

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